Industrial Market Overview, 2016

Research & Forecast Report Bulgaria | Industrial Real Estate Market 2016

Industrial Market Overview

Supply

Verka Petkova Manager | Office and Industrial Services verka.petkova@colliers.com “Speculative construction of modern warehouse and logistics space in Sofia increased by 5%.”

“Rapid absorption of vacant space in Sofia and lack of supply in some of the most attractive areas - around Sofia Airport and Plovdiv, led to contract renegotiation with logistics tenants for these locations, at slightly increased rents.”

“Light industry companies and manufacturers of automotive components remained the main demand driver for industrial space. The interest for projects in the western part of Sofia marked an increase.”

The supply of modern warehouses and logistics space in Sofia has made a steady growth from 2009 until now. The past 2016 made no exception. The increase was 5% and the total stock reached 839,500 sqm (Fig.1). The greatest impact came from a few speculative projects, such as Sofia Ring Logistic Park (9,600 sqm), East Ring Logistics Park - Phase 2 (6,400 sqm) and Industrial Park Sofia East - Phase 1 (10,600 sqm) – contemporary logistics parks with infrastructure and opportunities for expansion of tenants.

Major projects under construction were the second building of Industrial Park Sofia East (IPSE), scheduled for completion in 2017 and the subsequent launch of the next phase of the project. The pipeline for 2017 includes the third building of East Ring Logistics Park, the second building of Techno Park Sofia and a new phase of Transcapital.

Fig 1. Logistics and warehouse space in Sofia (‘000 sqm) 900 800 700

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757

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441 289

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2016

Demand In 2016 the annual net absorption saw a decline, compared to the 2015 levels. Approximately 53,000 sqm were leased in speculative modern warehouses and logistics properties, both under construction and existing. The main demand driver for industrial space remained the light industry companies and manufacturers of automotive components. A joint research project of Colliers Bulgaria and Automotive Cluster Bulgaria, conducted in the second half of 2016, showed that Bulgaria occupies the top position among 10 selected European countries that are attractive for the automotive industry. In the country there are about 100 companies with over 33,000 employees, who produce components for almost every brand of the international automotive industry. They are located all over Bulgaria, with a higher concentration in the south area. The revenue generated by the segment in 2015 amounted to 1.55 bn. euro and accounted for 3.5% of GDP. Some of the main advantages of Bulgaria, as defined by the companies that took part in the survey, are the low labor cost (50%), the EU membership and proximity to customers and manufacturers (ranking second in importance to 45% of respondents), followed by tax incentives for establishing activities in municipalities with high level of unemployment (36%).

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Industrial Market Overview | 2016 | Colliers International

ROMANIA Vidin

Russe

Pleven

Shumen VARNA

SERBIA Veliko Turnovo

Nessebar

Sliven

SOFIA

BLACK SEA

Karlovo

Panagyurishte

BURGAS Stara Zagora

PLOVDIV

Blagoevgrad FYROM

Dimitrovgrad

Kardzhali TURKEY

GREECE

Among the criteria are also low cost of real estate and electricity, the currency board arrangement, accessibility and quality of the workforce.

The majority of companies stepping on the Bulgarian market were initially looking for adequate space to lease. Subsequently, the lack of projects meeting their specific requirements, the low construction costs compared to the prices in other European countries and the potential for utilization of state incentives for certification of investment projects, ushered the companies towards purchasing built-to-suit projects.

properties, meeting the requirements of companies in the area of Sofia Airport and Plovdiv, there was a tendency of renegotiating contract conditions at higher levels - 5-5.20 euro/sqm. Space, leased to manufacturing companies in Sofia, could reach levels above 5.5 euro/sqm, depending on the specific technical specifications for the finishing works.

Fig 3. Average asking rental rates for modern logistics space in Sofia (euro/sqm) 4.8

The interest towards the major cities with developed infrastructure, easy access and good connectivity to customers and suppliers remained consistent. As an alternative to the wellknown industrial regions, such as Plovdiv with high concentration of already established and expanding production facilities, the focus was redirected to the western part of Sofia - Bozhurishte and Kostinbrod. Key reasons for that were the construction of the Western arc of the Ring Road and the Sofia Northern Bypass, facilitating the supply chain to Central and Western Europe, as well as workforce availability in Sofia area (Fig.2).

Vacancy The vacancy of warehouses and logistics space in Sofia shrank by about 3% annually and reached 8% of the total stock. This was valid mostly for the high-quality speculative projects with remaining smaller surface or properties, which were below tenant expectations.

Rental levels Average rents of modern logistics space in Sofia varied between 4.2 - 4.5 euro/sqm. (Fig. 3). Due to the insufficient supply of

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Industrial Market Overview | 2016 | Colliers International

Fig 2. Geographical distribution of companies acquired industrial/logistics space in 2016

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3.3 2.8

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Class A

Class B

Forecast »»

Speculative construction of modern logistics projects to continue. 33,500 sqm are expected to enter the market in 2017.

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Rental levels to remain stable.

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The completion of the western arc of Sofia Ring Road and Sofia Northern Bypass to strengthen the interest of manufacturing companies to locations in the western part of the capital.

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The opening of new locations and the expansion of existing ones of companies from the automotive segment to solidify as a trend in 2017.

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Verka Petkova Manager | Office and Industrial Services +359 2 976 9 976 verka.petkova@colliers.com Lora Mitova Market Research +359 2 976 9 976 lora.mitova@colliers.com

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About Colliers International Colliers International is a global leader in commercial real estate services, with over 16,000 professionals operating out of more than 554 offices in 66 countries. The company operates in Bulgaria since 1991 and delivers a full range of services to real estate users, owners and investors worldwide. Presently Colliers represents some of the most innovative and professionally planned projects in all market segments, including office, retail, logistics, industrial and residential. As of June 2015, Colliers is an independently owned company. The common shares of Colliers International Group Inc. trade on the NASDAQ under the symbol “CIGI” and on the Toronto Stock Exchange under the symbol “CIG”.

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The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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